Dave Says – Small Business Edition

Financing A Business Is Risky

Dear Dave,

How do you go about financing a business you may want to buy?

Anonymous

Dear Anonymous,

I don’t do debt, which means I don’t borrow money. With this in mind, I can’t recommend that you take on a bunch of debt to buy or start a company. When you borrow money to do business, you’re automatically adding a huge level of risk to the equation. Trust me, small business owners have enough to worry about without adding the extra burden of debt to the list. When it comes to this kind of situation, the only “financed” deal I might consider would be an owner-financed situation, where your pay to them is based on the profitability of the business. That way, if there’s no profitability, you’re not bankrupt. If you run and get a loan for $500,000, or whatever it takes to buy a business, and then you can’t make the payments because the business doesn’t do well, you’re in big trouble!

When you do business deals that are all-or-nothing—meaning you’re bankrupt if your plan doesn’t work—you’re just being stupid. There’s no point in taking such huge risks to live your dreams. It’s just not necessary!

—Dave

Competing With The Big Boys

Dear Dave,

How should a new, small business that competes with larger, established companies sell their services?

Anonymous

Dear Anonymous,

You know, it’s really not that hard to beat a bigger company. If you connect with a customer professionally and at the heart level, you’ll win most of the time.

Start out with a superior level of service and a vastly superior team around you. Quality people are an essential component—especially with a small business.

Make them part of the dream and the vision of what you’re trying to accomplish. It makes all the difference in the world when the people representing you actually care about the business and the customers and take the time to create real relationships with them.

And, of course, a better price doesn’t hurt, either!

—Dave

The sharing or the debt?

Dear Dave,

My small business has been very successful this year. I’d like to start a profit sharing program, but the company still has some debt. Should I wait until the debt is completely paid off to implement this idea?

Mark

Dear Mark,

I’m glad you’re thinking this way. Sharing with your team changes the very culture of the company. Your team will see the rewards of their efforts. In my mind, it’s an absolute necessity when it comes to winning in business.

Debt elimination is also a very smart thing. When debt is out of the picture, your cash flow and profits increase and your risk is reduced.Plus, if you’re thinking about a profit sharing plan, it will give you more money to share with your team! So, what you have here is two good ideas. Give both of them a shot! Find a balance between the profit sharing and debt payments, and see what happens. When your debt is paid off, you can increase the profit sharing because you’ll have more money to go around!

Hitting a Measure of Success

Dear Dave,

I’ve heard you talk about goal setting and the need to attach a date to the goals you have. I’ve also heard you mention using a calendar date when it comes to making decisions. Is there a difference between setting goals and making a decision?

Mickey

Dear Mickey,

Absolutely! If you come to the conclusion to take action on a particular matter, that’s not a goal, it’s a decision. You may have planned in advance to make your decision by that date, but taking action is definitely a decision.

Let’s say you set a goal of having $100,000 in sales next quarter. Then, if your sales total $85,000, that’s a goal that you missed. Basically, a decision is saying that you’re definitely going to have something in place by a certain date. In contrast, a goal would be trying to attain a certain measure of success in a given amount of time.

Saying you want to lose 30 pounds in 90 days is a goal. Jumping in and starting a diet is a decision. One is a case where you’re making a projection, and the other is a situation where—boom!—you’re actually deciding something and making the call.

—Dave

About the Author
Dave Ramsey is a personal money management expert, popular national radio personality and the author of three New York Times bestsellers – The Total Money Makeover, Financial Peace Revisited and More Than Enough. In them, Ramsey exemplifies his life’s work of teaching others how to be financially responsible, so they can acquire enough wealth to take care of loved ones, live prosperously into old age, and give generously to others. Ramsey offers life-changing, financial advice as host of a nationally syndicated radio program, The Dave Ramsey Show, which is heard by 4.5 million listeners each week on 450 radio stations throughout the United States. His syndicated column, Dave Says, can be read in more than 300 print and online publications worldwide. For more small business advice, please visit daveramsey.com.